Question 1

The expression "terms of trade" refers to the:

Accepted Answer

Terms of trade refers to the ratio at which a country can trade its exports for imports, reflecting the relative prices of the two countries' goods. It is a measure of a country's economic performance in international trade.

Question 2

If the opportunity cost is 2X = 1Y for country A and 1X = 3Y for country B, then a possible terms of trade is:

Accepted Answer

The answer of If the opportunity cost is 2X =...

Question 3

The concept of comparative advantage leads to the conclusion that:

Accepted Answer

The concept of comparative advantage suggests that trade between two countries will be beneficial if each country specializes in producing the goods it can produce most efficiently (i.e. at the lowest opportunity cost) and then trades with the other country for the goods it cannot produce as efficiently. This means that trade will benefit the two countries if the relative costs of production differ in the two countries.

Question 4

The expression "gains from trade" refers to:

Accepted Answer

Gains from trade refer to the net benefits that a country receives from trade. These benefits include increased efficiency, increased access to a wider variety of goods and services, and the ability to take advantage of comparative advantage.

Question 5

If the opportunity cost is 2X = 1Y for country A and 1/3X = 1Y for country B, then a possible terms of trade is:

Accepted Answer

The answer of If the opportunity cost is 2X =...

Question 6

Suppose that there are only two countries in the world, Heartland and Soulland. The two countries produce only two goods, corn and drill presses. At its current level of production, Heartland must give up production of 1/4 drill press to produce an additional 100 bushels of corn. Soulland must give up 1 drill press to produce an additional 100 bushels of corn. No trade now occurs between the two economies, and both economies are operating on their respective production possibilities frontiers.
-(Exhibit: Heartland and Soulland) The country with a comparative advantage in the production of drill presses is:

Accepted Answer

Soulland has a lower opportunity cost of producing corn than Heartland because it only has to give up 1 drill press to produce an additional 100 bushels of corn, whereas Heartland has to give up 1/4 drill press to produce the same amount of corn. This means that Soulland has a comparative advantage in producing corn and therefore Heartland has a comparative advantage in producing drill presses.

Question 7

Suppose that there are only two countries in the world, Heartland and Soulland. The two countries produce only two goods, corn and drill presses. At its current level of production, Heartland must give up production of 1/4 drill press to produce an additional 100 bushels of corn. Soulland must give up 1 drill press to produce an additional 100 bushels of corn. No trade now occurs between the two economies, and both economies are operating on their respective production possibilities frontiers.
-(Exhibit: Heartland and Soulland) The country with a comparative advantage in the production of corn is:

Accepted Answer

Heartland has a comparative advantage in the production of corn because it only has to give up 1/4 of a drill press to produce an additional 100 bushels of corn, whereas Soulland must give up a whole drill press for the same amount of corn. This means Heartland can produce corn at a lower opportunity cost than Soulland.

Question 8

The rate at which a country can trade domestic products for imported products is its:

Accepted Answer

Terms of trade refer to the rate at which a country can trade its domestic products for imported products. The other choices do not accurately reflect this concept.

Question 9

Which of the following statements is true?

Accepted Answer

Free international trade allows each country to specialize in producing the goods they have a comparative advantage in, which increases efficiency and ultimately leads to an increase in the availability of all goods and services.

Question 10

Product _______ may create _______ trade between countries, particularly in those with similar relative factor endowments.

Accepted Answer

Differentiation in products can lead to two-way trade between countries with similar factor endowments because each country can specialize in producing different products that cater to their own unique comparative advantages, leading to reciprocal trade.

Question 11

International exchange in which countries are either exporters or importers of a good, but do not do both, is called _______ trade.

Accepted Answer

One-way trade, also known as unilateral trade, occurs when a country only exports or imports a good or service, and does not participate in the other side of the trade equation. This is a relatively rare occurrence in modern international trade, as most countries engage in both exports and imports.

Question 12

Suppose that Brazil and Peru exchange coffee and leather. Brazil can produce both coffee and leather more efficiently than Peru, but Brazil can produce coffee more efficiently than leather. Comparative advantage states that:

Accepted Answer

Comparative advantage suggests that each country should specialize in the production of goods for which it has a lower opportunity cost. Even though Brazil is more efficient in producing both goods, it has a comparative advantage in coffee due to its relatively greater efficiency in coffee production compared to leather. Peru, by default, has a comparative advantage in leather because it is the good for which it has the least comparative disadvantage. Therefore, Brazil should specialize in coffee, Peru in leather, and they should trade to maximize efficiency and benefits.

Question 13

Suppose that there are only two countries in the world, Heartland and Soulland. The two countries produce only two goods, corn and drill presses. At its current level of production, Heartland must give up production of 1/4 drill press to produce an additional 100 bushels of corn. Soulland must give up 1 drill press to produce an additional 100 bushels of corn. No trade now occurs between the two economies, and both economies are operating on their respective production possibilities frontiers.
-(Exhibit: Heartland and Soulland) If trade now opens up between the two economies, we can expect that:

Accepted Answer

Heartland has a lower opportunity cost for producing corn, as it gives up only 1/4 drill press for an additional 100 bushels of corn. Soulland has a higher opportunity cost for producing corn, as it gives up 1 drill press for an additional 100 bushels of corn. This means that Heartland has a comparative advantage in corn production, while Soulland has a comparative advantage in drill press production. 
Therefore, Heartland will export corn to Soulland and import drill presses from it, as it can produce corn more efficiently and obtain drill presses from Soulland at a lower opportunity cost. Soulland will export drill presses to Heartland and import corn from it for the same reasons. 
Thus, choice B is the correct answer.

Question 14

International exchange in which countries both import and export the same good is called:

Accepted Answer

Two-way trade, also known as bilateral trade, occurs when two countries both import and export the same good. This is the most common form of international trade. One-way trade would refer to a situation where only one country is either importing or exporting a specific good. Strategic trade refers to government policies and actions aimed at increasing a country's comparative advantage in certain industries. Multilateral trade involves multiple countries trading with one another.

Question 15

When a domestic country exports goods to and imports goods from a foreign country, in the short run domestic:

Accepted Answer

The answer of When a domestic country exports goods to...

Question 16

According to the Case in Point on U.S. Comparative Advantage, the United States currently has a comparative advantage in the production of:

Accepted Answer

The Case in Point states that the United States has a comparative advantage in the production of high-tech capital equipment. It mentions that the U.S. dominates in producing semiconductors, computer peripheral equipment, and telecommunications equipment. Therefore, option C is the correct answer. The other options are not supported by the information presented in the case.

Question 17

Given that two countries (A and B) each specialize in the production of one good and voluntarily trade it for the other country's good, then:

Accepted Answer

When countries specialize in producing the good that they are relatively more efficient in producing, they can then trade that good for the other country's good, which the other country is relatively more efficient in producing. As a result, both countries can consume more goods than they could if they produced both goods domestically without trade. Therefore, both countries experience positive gains from trade.

Question 18

Suppose that there are only two countries in the world, Heartland and Soulland. The two countries produce only two goods, corn and drill presses. At its current level of production, Heartland must give up production of 1/4 drill press to produce an additional 100 bushels of corn. Soulland must give up 1 drill press to produce an additional 100 bushels of corn. No trade now occurs between the two economies, and both economies are operating on their respective production possibilities frontiers.
-(Exhibit: Heartland and Soulland) If trade now opens up between the two economies, we can expect that:

Accepted Answer

With trade, both countries can specialize in producing the good in which they have a comparative advantage and then trade with each other. Heartland has a lower opportunity cost of producing corn (1/4 drill press) compared to Soulland (1 drill press). Therefore, Heartland can produce more corn and export it to Soulland while Soulland can produce more drill presses and export them to Heartland. This will result in both countries being able to consume more of both goods.

Question 19

When a domestic country exports goods to and imports goods from a foreign country, in the short run domestic:

Accepted Answer

The answer of When a domestic country exports goods to...

Question 20

In a perfectly competitive world:

Accepted Answer

The answer of In a perfectly competitive world:
...

Quiz 17: Financial Markets

The expression "terms of trade" refers to the:

If the opportunity cost is 2X = 1Y for country A and 1X = 3Y for country B, then a possible terms of trade is:

The concept of comparative advantage leads to the conclusion that:

The expression "gains from trade" refers to:

If the opportunity cost is 2X = 1Y for country A and 1/3X = 1Y for country B, then a possible terms of trade is:

The rate at which a country can trade domestic products for imported products is its:

Which of the following statements is true?

Product _ may create _ trade between countries, particularly in those with similar relative factor endowments.

International exchange in which countries are either exporters or importers of a good, but do not do both, is called _______ trade.

Suppose that Brazil and Peru exchange coffee and leather. Brazil can produce both coffee and leather more efficiently than Peru, but Brazil can produce coffee more efficiently than leather. Comparative advantage states that:

International exchange in which countries both import and export the same good is called:

When a domestic country exports goods to and imports goods from a foreign country, in the short run domestic:

According to the Case in Point on U.S. Comparative Advantage, the United States currently has a comparative advantage in the production of:

Given that two countries (A and B) each specialize in the production of one good and voluntarily trade it for the other country's good, then:

When a domestic country exports goods to and imports goods from a foreign country, in the short run domestic:

In a perfectly competitive world: